In what way do developed countries steal trillions of dollars from developing countries?

Question

According to the Guardian, rich Western countries 'steal' large amounts of money from poor countries, much more than they give in development aid.

If we add theft through trade in services to the mix, it brings total net resource outflows to about \$3tn per year. That’s 24 times more than the aid budget. In other words, for every \$1 of aid that developing countries receive, they lose \$24 in net outflows. These outflows strip developing countries of an important source of revenue and finance for development. The GFI report finds that increasingly large net outflows have caused economic growth rates in developing countries to decline, and are directly responsible for falling living standards.

I would like to know in what way the money is ‘stolen’, if this is illegal and if this is indeed ‘directly responsible for falling living standards’.

Answer 1

On Theft

The same article you link to says that what it calls 'theft' is the practice of multinationals dodging taxes. The article explains it the two paragraphs before:

Multinational companies also steal money from developing countries through “same-invoice faking”, shifting profits illegally between their own subsidiaries by mutually faking trade invoice prices on both sides. For example, a subsidiary in Nigeria might dodge local taxes by shifting money to a related subsidiary in the British Virgin Islands, where the tax rate is effectively zero and where stolen funds can’t be traced.

Tax dodging is not theft according to dictionary definition but I believe the author is using the word theft metaphorically here (e.g. like when Nozick when he said 'taxation is theft' or when Proudhon said 'property is theft', of course its not meant literally).

On Impact of Tax Dodging on Economic Development

This is topic that is not yet well understood as some other areas of economics due to lack of data. However, what research there is suggest that tax avoidance negatively impacts economic development (e.g. see reviews of literature such as: Fuest & Riedel, 2009; Cobham, 2005).

The reason why tax avoidance harms economic development is that it reduces the government revenue that could be in principle used for provision of public goods. Public goods such as for example, provision of effective police that protects people and their property, or effective courts etc. In turn these public goods and institutions they protect are crucial to economic development (e.g. see Acemoglu and Robinson 2012). However, what is less clear is whether some developing countries would actually in a contrafactual world where they get this extra tax revenue spent it on such public goods or used it to prop up corrupt regime (e.g. how oil revenue is often used by dictatorships to stay in power).

However, the caveat above being said, its not unreasonable to state that such tax dodging probably negatively affects economic development. Even if the evidence is not completely conclusive its thought that it is more likely than not to have negative effect.

Answer 2

It is not strictly speaking illegal for governments to make asymmetric agreements where one more powerful country uses their position to achieve terms more favorable to them than the smaller, poorer, less powerful country. If the same contract terms were downsized to the corporate or individual level various Federal Trade Commission or Extortion laws would likely be violated.

A typical example of this "theft" as conducted by the US and China would be the offer of funding for a duration of time in exchange for mineral rights. China does this in the middle east and the US has done this in South America. The world power receives access to resources at what is effectively a 10:1 or greater value and the smaller country which did not possess the capital or technology to commercialize use or access the resources receives a temporary injection of cash that their desperation made necessary.

A far more explicit explanation of the practice can be found in the book "Confessions of an Economic Hitman" which was written by a state department contractor who claims to have spent decades making these lopsided deals on behalf of the US government and relieving small countries of their valuable resources for fractions of a penny on the dollar.